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6 top investing mistakes to avoid

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This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.

Investing is a powerful way to build wealth and open financial opportunities for you and your loved ones in the future. Yet investing is often daunting for people who have not dealt with the subject before, and even seasoned investors can fall into costly mistakes. Here at Castlegate, our goal is to help people in Grantham, Lincolnshire and beyond with their investments to make sure they navigate this world effectively over the long term.

Below, we outline six common investment mistakes to avoid. We hope you find this content helpful. If you’d like to discuss any of these matters or your own financial plan please get in touch to arrange a no-obligation financial consultation, at our expense:

01476 855 585

#1 Risk dishonesty

Many of us are poor at judging our own attitude to investment risk. Some believe that they can stomach more risk than they actually can, whilst others might find they are being too cautious.

It is important to be honest with yourself – and your financial adviser – about how much volatility you can cope with. Here, it could help to ask yourself direct questions such as: “If my investment suddenly plummeted by 25% overnight, how would I feel and react?”

Here, a range of factors might affect your answer. If this is a small amount of money which you can afford to lose, then it may not bother you too much. However, if it concerns your life savings (for retirement) then you might feel differently.

Failure to be honest with yourself about your risk tolerance could lead to costly decisions – such as taking your money out of the stock market during a crash (a big mistake).

#2 Ignoring fees

Unlike putting cash into a regular savings account, investing comes with a cost. A range of fees are imposed which investors often forget about or do not understand. Yet these can have a big impact on your returns.

Be especially mindful of your investment platform fees and fund management fees. The former charges you for housing your portfolio, whilst the latter charges you for managing the fund within your portfolio. There are many options for both on the market, so consider speaking with your financial adviser about how to ensure you do not overpay.

#3 Investing before understanding

One of the biggest mistakes people make is investing in something they do not understand – whether it is a company, a bond or a fund. Whilst you do not need to become a financial expert, it is important that you are confident about what you are committing your money to.

Ask your financial adviser if you are unsure. If you do not know what an ETF or index fund is, for instance, take time to go through the core ideas together before investing in one.

#4 High turnover

Jumping in and out of investment positions – i.e. buying and selling shares, bonds and funds on a regular basis – is a fast way to erode your returns dramatically. Bear in mind that doing this will incur a lot of trading fees (e.g. commission and spread from the platform). It is better to pick a set of investments that you are happy with over the long term and adjust every 6-12 months with your financial adviser (if necessary) to make sure everything still aligns with your strategy.

#5 Short-term market timing

Trying to “buy low” and “sell high” is extremely difficult. Even experienced fund managers do not manage it consistently. One study shows that, within a one-year period, only 39.67% of active fund managers (large-cap) outperformed the S&P 500 index. Over a 5-year period, however, the percentage decreases to 24.73%. For most people, the best way to generate strong returns is to make wise decisions about the assets you allocate in your portfolio – rather than market timing.

#6 Not diversifying

Most people would agree that putting all of your life savings into the shares of a single company would be foolish. If the business failed, after all, then you could lose everything. Yet many still do not diversify their investments properly – perhaps concentrating too much of the portfolio within a single country, asset class or industry/sector.

For instance, putting most of someone’s retirement savings (e.g. £100,000s) into 4-10 stocks is likely not going to ensure enough diversification. Rather, picking a range of funds – each holding dozens, 100s or more investments – would likely ensure that the capital is spread out carefully and not overly exposed to risk. A good rule of thumb is to not commit more than 5-10% towards a company, property or other single investment.

Conclusion & invitation

There are many other common investor mistakes in addition to these. Working with a financial planner over a long-term relationship is often a good way to help protect yourself against these kinds of investor biases, and give your portfolio the best chance for future success.

If you are interested in discussing your own financial plan or protection strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

01476 855 585